8x8, Inc. Announces Second Quarter Fiscal 2013 Results

Record revenue of $26.4 million; Non-GAAP net income of $3.7 million,
or $0.05 per share

SAN JOSE, Calif.--(BUSINESS WIRE)--
8x8, Inc. (Nasdaq: EGHT), provider of innovative cloud-based business
communications and computing solutions, today announced financial
operating results for the second quarter of fiscal 2013 ended September
30, 2012.

Second Quarter Fiscal 2013 Financial Highlights:

Total revenue for the quarter increased 33% year over year to a record
$26.4 million from $19.8 million in the same period of fiscal 2012.

Revenue from business customers comprised 96% of total revenue for the
quarter.

Overall gross margin increased to 68% compared with 67% in the prior
quarter and 66% in the same period last year. Service gross margin was
76%, compared with 75% in the prior quarter and 77% in the same period
last year.

Non-GAAP net income (as outlined in the reconciliation table below)
was $3.7 million, or $0.05 per diluted share, compared with $1.7
million, or $0.02 per diluted share, in the same period a year ago.

GAAP net income was $1.7 million, or $0.02 per diluted share, compared
with $0.8 million, or $0.01 per share, for the same period last year.

Ended the quarter with $40.1 million in cash, cash equivalents and
investments compared with $19.1 million on September 30, 2011.

"I am pleased to announce another outstanding quarter marked by solid
revenue and profit growth alongside increased gross margins which we
expect will continue to improve as a result of the operational
efficiencies of our cloud-based, monthly recurring revenue business
model," said 8x8 Chairman & CEO Bryan Martin.

Second Quarter Fiscal 2013 Operating Metrics and Other Business
Highlights:

Average monthly revenue per business customer was $256, compared with
$207 in the same period last year and $250 in the prior quarter.

Average number of services subscribed to per business customer grew to
10.6 from 9.0 in the same period last year and 10.1 services in the
prior quarter.

For new customers added during the September quarter, the average
number of services subscribed to grew to 14.7 from 12.4 in the same
period last year.

Business service revenue churn was 1.0%, compared with 1.9% in the
same period last year and 2.3% in the prior quarter.

Ended the quarter with 30,498 business customers, up from 29,913
business customers in the prior quarter; net company additions for the
quarter were affected by the departure of approximately 400
‘one-number access' customers representing approximately $9,000 per
month in recurring revenue that were previously acquired in 2008 from
Avtex Solutions.

Awarded two new patents related to contact/call center technologies;
company has been awarded 83 U.S. patents since inception.

Received the 2012 North American Frost & Sullivan Award for leadership
in Hosted IP Telephony and Unified Communications in July.

"Our operating metrics for the second quarter of fiscal 2013 demonstrate
the continued adoption of a greater number of 8x8 services by both small
and mid-market customers, many of whom have multiple geographic
locations and mobile workforces that are no longer served or supported
by legacy premise-based or hybrid approaches," Martin continued.
"According to recent Frost & Sullivan data, 84% of companies have remote
workers who spend at least 25% of their time away from their desks. To
support this growing trend, we have significantly enhanced our core
Virtual Office hosted PBX offering with upgraded smartphone and tablet
apps that extend the communications capabilities and productivity
advantages of our services onto the most popular telephony, video and
mobile devices used in today's business environments. We look forward to
delivering these and other new applications as the business
communications market continues to evolve."

Six Months Year to Date Fiscal 2013 Financial Highlights:

Total revenue for the six months ended September 30, 2012, increased
35% year over year to $51.6 million from $38.3 million in the same
period of fiscal 2012.

Overall gross margin for the six months ended September 30, 2012,
increased to 67.3%, compared with 66.7% in the same period last year.

Non-GAAP net income (as outlined in the reconciliation table below)
for the six months ended September 30, 2012, was $7.1 million, or
$0.10 per diluted share, compared with $3.6 million, or $0.05 per
diluted share, for the same period last year.

GAAP net income for the six months ended September 30, 2012, was $10.4
million, or $0.14 per diluted share, compared with $2.8 million, or
$0.04 per diluted share, for the same period last year.

Non-GAAP Measures

We have provided in this release financial information that has not been
prepared in accordance with Generally Accepted Accounting Principles
(GAAP). We use these non-GAAP financial measures internally in analyzing
our financial results and believe they are useful to investors, as a
supplement to GAAP measures, in evaluating our ongoing operational
performance. We believe that the use of these non-GAAP financial
measures provides an additional tool for investors to use in evaluating
our ongoing operating results and trends and in comparing our financial
results with other companies in our industry, many of which present
similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. Investors are encouraged to review the reconciliation of
these non-GAAP financial measures to their most directly comparable GAAP
financial measures below. A reconciliation of our non-GAAP financial
measures to their most directly comparable GAAP measures has been
provided in the financial statement tables included below in this press
release.

Non-GAAP net income and non-GAAP net income per
share

We have defined non-GAAP net income as net income for GAAP plus loss on
investment, non-cash tax adjustments, stock-based compensation,
amortization of acquired intangible assets, acquisition-related costs,
facility exit costs and gain on patent sale. We have excluded loss on a
strategic investment in another company and gain on patent sale because
we consider these to be isolated transactions and believe these are not
reflective of our ongoing operations. Non-cash tax adjustments represent
the differences between the amount of taxes we expect to pay and our
GAAP tax provision each period. We have excluded stock-based
compensation expense because it relies on valuations based on future
events, such as the market price of our common stock, that are difficult
to predict and are affected by market factors that are largely not
within the control of management. Amortization of acquired intangible
assets is excluded because it is a non-cash expense that we do not
consider part of ongoing operations when assessing our financial
performance, as it relates to accounting for certain purchased assets.
We have excluded acquisition-related expenses, including expenses to
exit facilities, because these expenses are difficult to predict and are
often one-time. We define non-GAAP net income per share as non-GAAP net
income divided by the weighted-average diluted shares outstanding. We
define non-GAAP net income percentage of revenue as non-GAAP net income
divided by revenue. The GAAP and non-GAAP weighted average number of
diluted shares to calculate GAAP and non-GAAP earnings per share are the
same. We believe that such exclusions facilitate comparisons to our
historical operating results and to the results of other companies in
the same industry, and provides investors with information that we use
in evaluating management's performance on a quarterly and annual basis.

Management will host a conference call to discuss these results and
other matters related to the Company's business today, October 24, 2012,
at 4:30 p.m. EDT. The call is accessible via the following numbers and
webcast links:

8x8, Inc. (NASDAQ: EGHT) empowers business conversations for more than
30,000 small and medium-sized businesses with cloud communications
services that include hosted PBX telephony, unified communications,
contact center and video conferencing solutions. Named the No. 1
Provider of Hosted IP Telephony by market research firm Frost &
Sullivan, 8x8 has been delivering business communications services since
2004 and has garnered a reputation for technical excellence and
outstanding reliability. For additional information, visit www.8x8.com,
or connect with 8x8 on Facebook
and Twitter.

Forward Looking Statements

This news release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and
Section 21E of the Securities Exchange Act of 1934. These statements
include, without limitation, information about future events based on
current expectations, potential product development efforts, near and
long-term objectives, potential new business, strategies, organization
changes, changing markets, future business performance and outlook. Such
statements are predictions only, and actual events or results could
differ materially from those made in any forward-looking statements due
to a number of risks and uncertainties. Actual results and trends may
differ materially from historical results or those projected in any such
forward-looking statements depending on a variety of factors. These
factors include, but are not limited to, customer acceptance and demand
for our products and services, the reliability of our services, the
prices for our services, customer renewal rates, customer acquisition
costs, actions by our competitors, including price reductions for their
telephone services, potential federal and state regulatory actions,
compliance costs, potential warranty claims and product defects, our
needs for and the availability of adequate working capital, our ability
to innovate technologically, the timely supply of products by our
contract manufacturers, potential future intellectual property
infringement claims that could adversely affect our business and
operating results, and our ability to retain our listing on the NASDAQ
Capital Market. For a discussion of such risks and uncertainties, which
could cause actual results to differ from those contained in the
forward-looking statements, see "Risk Factors" in the Company's reports
on Forms 10-K and 10-Q, as well as other reports that 8x8, Inc. files
from time to time with the Securities and Exchange Commission. All
forward-looking statements are qualified in their entirety by this
cautionary statement, and 8x8, Inc. undertakes no obligation to update
publicly any forward-looking statement for any reason, except as
required by law, even as new information becomes available or other
events occur in the future.

NOTE: 8x8, the 8x8 logo, and 8x8 Virtual Office are trademarks of 8x8,
Inc. All other trademarks are the property of their respective owners.

8x8, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts; unaudited)

Three Months Ended

Six Months Ended

September 30,

September 30,

2012

2011

2012

2011

Service revenue

$

24,177

$

18,013

$

47,349

$

35,034

Product revenue

2,194

1,806

4,274

3,292

Total revenue

26,371

19,819

51,623

38,326

Operating expenses:

Cost of service revenue

5,825

4,059

11,511

7,874

Cost of product revenue

2,672

2,613

5,382

4,883

Research and development

2,030

1,540

3,856

2,947

Sales and marketing

11,010

9,076

21,551

17,260

General and administrative

2,070

1,666

4,134

2,891

Gain on patent sale

-

-

(11,965

)

-

Total operating expenses

23,607

18,954

34,469

35,855

Income from operations

2,764

865

17,154

2,471

Other income (expense), net

9

(11

)

17

9

Income before provision (benefit) for income taxes

2,773

854

17,171

2,480

Provision (benefit) for income taxes

1,032

22

6,813

(299

)

Net income

$

1,741

$

832

$

10,358

$

2,779

Net income per share:

Basic

$

0.02

$

0.01

$

0.15

$

0.04

Diluted

$

0.02

$

0.01

$

0.14

$

0.04

Weighted average number of shares:

Basic

71,261

63,710

70,989

62,989

Diluted

74,558

67,759

74,210

66,833

8x8, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

September 30,

March 31,

2012

2012

ASSETS

Current assets

Cash and cash equivalents

$

38,108

$

22,426

Investments

2,009

1,942

Accounts receivable, net

4,153

2,279

Inventory

571

581

Deferred tax assets

1,151

7,730

Other current assets

1,058

928

Total current assets

47,050

35,886

Property and equipment, net

7,225

3,820

Intangible assets, net

10,908

11,622

Goodwill

25,150

25,150

Deferred tax assets, non-current

53,977

53,977

Other assets

409

278

Total assets

$

144,719

$

130,733

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

5,065

$

5,476

Accrued compensation

3,047

3,105

Accrued warranty

376

387

Deferred revenue

985

891

Other accrued liabilities

2,438

2,356

Total current liabilities

11,911

12,215

Other liabilities

1,820

68

Total liabilities

13,731

12,283

Total stockholders' equity

130,988

118,450

Total liabilities and stockholders' equity

$

144,719

$

130,733

8x8, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Six Months Ended

September 30,

2012

2011

Cash flows from operating activities:

Net income

$

10,358

$

2,779

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation

1,132

716

Amortization

714

74

Stock-based compensation

1,062

595

Deferred income tax provision (benefit)

6,579

(336

)

Other

207

37

Changes in assets and liabilities:

Accounts receivable, net

(2,050

)

(438

)

Inventory

(19

)

1,491

Other current and noncurrent assets

(258

)

153

Deferred cost of goods sold

(3

)

(14

)

Accounts payable

(277

)

(1,737

)

Accrued compensation

(58

)

(366

)

Accrued warranty

(11

)

29

Accrued taxes and fees

205

(127

)

Deferred revenue

94

235

Other current and noncurrent liabilities

1,688

151

Net cash provided by operating activities

19,363

3,242

Cash flows from investing activities:

Purchases of property and equipment

(4,730

)

(1,211

)

Acquisition of businesses, net of cash acquired

-

(713

)

Net cash used in investing activities

(4,730

)

(1,924

)

Cash flows from financing activities:

Capital lease payments

(59

)

(247

)

Repurchase of common stock

(147

)

(1,038

)

Proceeds from issuance of common stock under employee stock plans

1,255

693

Net cash provided by (used in) financing activities

1,049

(592

)

Net increase in cash and cash equivalents

15,682

726

Cash and cash equivalents at the beginning of the period

22,426

16,474

Cash and cash equivalents at the end of the period

$

38,108

$

17,200

8x8, Inc.

Selected Operating Statistics

Three Months Ended

Sept. 30,2011

Dec. 31,2011

March 31,2012

June 30,2012

Sept. 30,2012

Gross business customer additions (1)

3,176

2,836

2,892

2,943

2,915

Gross business customer cancellations (less cancellations within 30
days of sign-up)

1,620

1,642

1,697

1,458

2,149

Business customer churn (less cancellations within 30 days of
sign-up) (2)

2.1

%

2.0

%

2.0

%

1.7

%

2.4

%

Business service revenue churn

1.9

%

1.9

%

1.6

%

2.3

%

1.0

%

Total business customers (3)

26,727

27,677

28,671

29,913

30,498

Business customer average monthly service revenue per customer (4)

$

207

$

239

$

244

$

250

$

256

Overall service margin

77

%

77

%

76

%

75

%

76

%

Overall product margin

-45

%

-24

%

-15

%

-30

%

-22

%

Overall gross margin

66

%

68

%

68

%

67

%

68

%

Business subscriber acquisition cost per service (5)

$

101

$

92

$

99

$

97

$

89

Average number of services subscribed to per business customer

9.0

9.4

9.8

10.1

10.6

Business customer subscriber acquisition cost (6)

$

906

$

867

$

965

$

980

$

944

(1) Includes 250 customers acquired directly from our acquisitions
in the second quarter of fiscal 2012 from Contactual and does not
include customers of Virtual Office Solo or Zerigo, Inc. ("Zerigo").

(2) Business customer churn is calculated by dividing the number of
business customers that terminated (after the expiration of the
30-day trial) during that period by the simple average number of
business customers during the period and dividing the result by the
number of months in the period. The simple average number of
business customers during the period is the number of business
customers on the first day of the period plus the number of business
customers on the last day of the period divided by two. In the
second quarter of fiscal 2013, an affiliate with 411 business
customers representing approximately $9,000 of monthly service
revenue cancelled service. Excluding these 411 cancellations,
business customer churn (less cancellations within 30 days of
sign-up) was 1.9%.

(3) Business customers are defined as customers paying for service.
Customers that are currently in the 30- day trial period are
considered to be customers that are paying for service. Customers
subscribing to Virtual Office Solo or Zerigo services are not
included as business customers.

(4) Business customer average monthly service revenue per customer
is service revenue from business customers in the period divided by
the number of months in the period divided by the simple average
number of business customers during the period.

(5) Business subscriber acquisition cost per service is defined as
the combined costs of advertising, marketing, promotions, sales
commissions and equipment subsidies for business services sold
during the period divided by the number of gross business services
added during the period.

(6) Business customer subscriber acquisition cost is business
subscriber acquisition cost per service times the average number of
services subscribed to per business customer.

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